Commercial development and natural resource management on the indigenous estate: a profit-related investment proposal

Economic Papers (Economic Society of Australia), Sept, 2005 by Jon Altman, Michael Dillon

Second, the Indigenous actors involved are heterogeneous, with diverse worldviews, contact histories, resource bases, and aspirations. They might wish to utilise different corporate vehicles, and work at different scales, from the individual and family level up to the regional level. Any scheme will need to be flexible and adaptable.

Third, the capacity of Indigenous landowners to manage complex organisations operating primarily in a Western institutional context can be problematic. Legitimate aspirations to maintain distinct customary prerogatives and institutions can in many respects be antithetical to established non-Indigenous norms of good corporate governance. Any new scheme will need to involve a strategy that builds on the undoubted capacities of Indigenous landowners in cultural and environmental management, while supplementing their corporate and financial management skills from outside and ensuring that they have engaged such capacity within community-controlled mediating organisations.

Fourth, the incentive structures (both corporate and individual) created by any new program arrangements will be important determinants of success. Chapman and Simes (2004, p. 16) emphasise the need for all parties in a project to contribute financially to minimise both 'adverse selection' and 'moral hazard'. In the case of Indigenous participation in any development program, adverse selection might result in those least likely to succeed seeking public and private sector support. Hence it is important that Indigenous stakeholders share some of the financial risk. Similarly, moral hazard might take the form of limited or low incentive to make an enterprise succeed or to repay loans. Again, joint ownership of the project might increase the cost of failure and lower potential moral hazard problems.

A key issue that needs highlighting here is that we are focusing on what Chapman and Simes (2004, p. 16) term 'community based projects', cognisant of the principal/agent, incentive and moral hazard problems that this entails. The public good elements of commercial development on Indigenous land may justify public intervention to assist individual landowners and, in theory, this could be undertaken through an income related loan mechanism. However, the practical difficulties of identifying such landowners and administering such a scheme in remote contexts where land is generally inalienable and held by groups rule it out as a feasible option in our view. Furthermore, it is unlikely that the tax system could be used as an efficient means to collect loans, especially given low individual capacity to pay. (7)

5 An Indigenous Profit-Related Investment Program

Historically, in Indigenous affairs government ministers have been reluctant to use any alternative funding models based on outsourcing to service providers on a competitive basis. (8) The scheme we are broadly proposing is based on just such an alternative and is modelled on a venture capital scheme, the IIF Program currently administered by the Department of Industry Tourism and Resources. The IIF Program was introduced in 1998 to support commercialisation of innovation by small start-up firms (Ausindustry, 2004).